Russia stops natural gas to Ukraine

Pipeline to EU nations could be in jeopardy

January 02, 2006|By Alex Rodriguez, Tribune foreign correspondent

MOSCOW — Russia's state-owned natural gas monopoly shut off gas to Ukraine on Sunday, a decision justified by Moscow as the result of a price dispute but viewed by many as Russia's harshest retaliation yet against Kiev's post-Orange Revolution, pro-West leadership.

The shutdown deprives Ukraine of a third of its natural gas supply and forces it to tap its gas reserves to get through the rest of winter. The decision by Gazprom, Russia's state-owned energy giant, also could jeopardize natural gas that Russia supplies to Western Europe via Ukraine, though Gazprom tried to reassure European leaders Sunday that their shipments would continue uninterrupted.

Ukraine had been paying $50 per thousand cubic meters of gas, a discounted tariff that reflected Gazprom's use of a pipeline through Ukraine to transport natural gas to Europe. Gazprom initially sought a price increase to $160, but in mid-December the Russian energy giant upped its demand to $230.

Ukrainian President Viktor Yushchenko refused to pay that price, calling it "a provocation." Russian President Vladimir Putin suggested Saturday that a shutdown could be averted if Ukraine agreed to begin paying the new $230 rate later, in April. Ukraine refused. Gazprom officials said their demand merely reflected market prices paid by other European customers. However, many analysts said Gazprom's tactics were driven by Russia's anger with Yushchenko's government, which is forging strong ties with the European Union and NATO and distancing itself from Moscow.

Yushchenko won the Ukrainian presidency in late 2004 after the country's supreme court overturned the initial victory of Yushchenko's Kremlin-backed rival, Viktor Yanukovych, citing massive election fraud. Thousands of Ukrainians massed in Kiev's Independence Square to demonstrate against Yanukovych's victory, a popular uprising later dubbed the Orange Revolution.

"Russia is the ultimate culprit," said analyst Valery Nesterov of Moscow's Troika Dialog brokerage firm. "It claims that this has nothing to do with politics, but there's just far too much politics at play here."

Perhaps the strongest indication yet that politics were influencing Russia's strategy in the price dispute was Gazprom's decision last week to buy natural gas from Turkmenistan, another former Soviet republic.

Turkmenistan already supplies Ukraine with roughly a third of its natural gas. However, the additional gas Gazprom bought from Turkmenistan could have helped Ukraine weather a stoppage of Russian gas sales.

"Gazprom has taken away that option from Ukraine," said Maria Belova, an analyst with Moscow's Institute for Energy and Finance.

The U.S. State Department on Sunday criticized Russia's decision. Spokesman Sean McCormack said, "Such an abrupt step creates insecurity in the energy sector in the region and raises serious questions about the use of energy to exert political pressure."

Russian rationale

Russian officials sought to blame Ukraine for the crisis. A statement released by Russia's Foreign Ministry said Ukrainian authorities "consciously decided to ruin talks with the Russian side, use the gas problem to paint Russia as an enemy, and manipulate public opinion on the eve of parliament elections."

At Gazprom's headquarters in southwest Moscow, spokesman Sergei Kuprianov said the company is taking steps to ensure that Ukraine does not use its pipelines to siphon natural gas sent from Russia but intended for Western Europe. He said Gazprom workers at control stations on the Ukrainian-Slovakian border were watching for any drop in pressure in Russian gas meant for Europe.

Gazprom supplies the EU with about half the gas its member nations consume. Roughly 80 percent of that amount is delivered through pipelines in Ukraine. Ukrainian officials maintain that their transit agreements with Gazprom allow it to siphon up to 15 percent of gas intended for EU countries.

Kuprianov said the refusal to accept the $230 price "will mean catastrophic consequences for Ukraine's economy and Ukraine's people. It'll be difficult for them to explain their actions to Ukrainians. It's their fault it has come to this."

Yushchenko's government issued no official reaction to news of the shutdown. Ukrainian authorities said last week that they believe reserves stored in underground tanks are sufficient to cope with the loss of Russian gas for several weeks.

By spring, however, consumers and businesses would begin feeling the pinch, Belova said.

"A great economic crisis would take place," Belova said. "Gas prices would rise dramatically, and prices of goods produced by natural gas-reliant industries would also greatly increase."